by Carole VanSickle Ellis

tional players are attracted to the state by rising home values, relatively afford- able land and costs of living (compared to comparable California metro areas, for example), and that above-average economy. However, if the time-proven axiom “What goes up must come down” is true in Texas, at some point the state’s biggest markets could be headed for a hard correction. Of course, if the "new normal" excludes market corrections, investors need to know! PAST CRASHES COULD HOLD THE KEY TO FUTURE MARKET PERFORMANCES In the early 1980s, Houston, Texas’ oil industry was booming. In 1980, oil pric- es peaked at $35 a barrel, the equivalent to more than $100 a barrel today. Six short years later, however, those same barrels were selling for about $10 each, or just a little more than $20 each today. The oil glut is, in itself, a fascinating topic. For our purposes, however, its broad effects on the Houston and Dallas real estate markets and economies, in particular, and the state of Texas, in general, will be the most important facets of the discussion. When oil prices started falling in 1982 and continued to do so for the next few years, Houston lost roughly one in every eight jobs (more than 225,000), posted unemployment rates higher than nine percent, and saw commercial real estate vacancy rates higher than 20 percent. Not surprising- ly, the construction boom that the city had been enjoying in the late 1970s and early 1980s slammed to a halt, with par-

he state of Texas has 10 distinct climatic regions and 11 dis-

tially completed skyscrapers commonly compared to skeletons dotting the landscape and skyline. While Houston tends to be the first place most people think of when they think of an oil economy, the entire state of Texas was certainly affected by the oil glut in the 1980s in dramatic, negative ways. More than two decades later when oil prices began falling in 2014, analysts predicted that more than 200,000 oil workers would lose their jobs if prices did not recover, and they were right. Many of those job losses did hit Texas. The consequences were painful since average pay in the oil and gas industry is about 84 percent higher than the national average according to Goldman Sachs. However, while oil certainly remains a very significant leg in the Texas economy, it is no longer the linchpin. As a result, the state’s overall economy, its housing market, and its major metro areas did not collapse in 2014 as they did in the early 80s, in large part due to lessons learned and changes implement- ed in the wake of that economic disas- ter. Furthermore, the same economic innovations that insulated the Texas economy in 2014 arguably protected it from the worst of the housing crash in the mid-2000s as well. A PATTERN OF DELIBERATE & EFFECTIVE ECONOMIC INNOVATION Texas has, as a state as well as on many municipal levels, dedicated itself to preventing a repeat of the oil glut di- saster by focusing heavily on attracting

tinct ecological regions, so it’s hardly surprising that the second-largest state in the union boasts hundreds of distinct housing markets. In fact, it’s far more common to find regional analyses than a statewide real estate analysis of Texas simply because the square mileage of the Lone Star State is so vast. A total of 696,200 square miles make the state sig- nificantly larger than several first world countries including France, Germany, and Japan. However, given the growing prevalence of a popular trend of defin- ing the “new normal” for Texas housing as something other than cyclical, the time has come to tackle the state as a whole in addition to scrutinizing its individual markets. According to Anil Kumar, an eco- nomic policy advisor at the Federal Reserve Bank of Dallas, “The Texas economy consistently grows faster than the nation…typically about one percentage point better [unless] there’s a serious oil price collapse.” Kumar went on to say he believes the state of expan- sion, growth, and economic leadership in Texas to be “the new normal” for the state, “as opposed to something that is approaching a correction.” With two Texas housing markets taking the top two spots for “most over- valued housing markets” according to a 2017 report by Forbes, determining if the state of Texas has somehow created or evolved into a “new normal” of per- manent growth and expansion instead of the conventional housing market cycle is a key concern for real estate investors. Local, national, and interna-

While oil certainly remains a very significant leg in the Texas economy, it is no longer the linchpin.

high-tech companies and their associat- ed high-paying jobs and economyboost- ing activity. That dedication to econom- ic diversity is serving the state and those invested there well. The intense focus on attracting non-oil-dependent businesses and, specifically, high-tech businesses, creates and sustains a resilient and multifaceted statewide economy. The Texas econo- my, with its entrepreneurial incentives, great tax benefits for individuals and corporations, and concerted initiatives to help commercial and residential prop- erty owners improve property values, remains steady, attractive, and flourish- ing. Below, we include a cross section of major housing markets in Texas to create a more comprehensive view of this still wideopen state and market. HOUSTON “The Bayou City” Houston is the biggest city in Texas

with a population of more than 2.3 million (2016 U.S. Census). Thanks to an economic evolution in the 1990s and early 2000s that largely insulated it from the national housing crisis and subse- quent financial meltdown and Great Recession, the city boasts an industrial base in energy, manufacturing, aero- nautics, healthcare, and transportation. Houston hosts 20 Fortune 500 com- panies, and its university system is dedi- cated to keeping graduates employed and residing in the area. According to the University of Hous- ton, more than 80 percent of the institu- tion’s 12,500-member, annual, degreed graduating class remains in the area for at least five years after graduation, con- sistently adding to the population and making the area extremely attractive to businesses seeking employees with advanced education. That population is also ideally suited for both long-term renting and homeownership thanks to

steady wages, opportunities for upward mobility in their employment, and a demonstrated desire to establish roots in the area. Investor Insight: “The best aspect of the Houston hous- ing market is that we see very slow, steady appreciation, even with major events like Hurricane Harvey (see sidebar on p. 41) or the foreclosure crisis,” observed Brian Spitz, owner and president of Hous- ton-based Big State Homebuyers. “Over the course of time, the Houston housing market is very stable.” Spitz added that he believes Houston has a “great deal of wasted space” that could be used for redevelopment. “These [lots] have the potential to be prime areas for commercial and real estate develop- ment,” he said, noting that this shift would necessitate the city government being “more proactive about condemning hous- es that are not in livable condition.”

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